Since most economists view the world from a right wing, neoliberal perspective they really have nothing very useful to say on tax because their model of the economy sees no useful purpose for it. As far as they consider the issue tax is invariably an imperfection preventing the optimal outcomes that they assume markets will provide and which their models of the economy are built to prove. They do this by the use of assumptions for which there are no rational bases (like people being rational). Alternatively they ignore facts, like tax having a fundamental and seemingly useful role in every economy of note by funding the services that people very clearly demand that a government, and not the market, supplies. But because most economists assume that this is not possible they should, by default, be ignored in debate on tax on the basis they have nothing useful to say on an issue they have never meaningfully studied.
No one, no one at all, other than an anarcho-capitalist, assumes that all markets, nothing but markets, all the time markets, provides an optimal outcome. That’s why the economics profession is united behind the ideas of either cap and trade or a carbon tax to deal with climate change (if it exists). Because all agree that pure markets do not provide optimal outcomes all the time and everywhere.
As to rationality. So, people are not rational then. But they demand government services. They must therefore be irrational in doing so, mustn’t they?
Or, if they’re being rational in demanding from government certain things that the market doesn’t provide (in which they are being rational, the debate is only over which things markets and governments can and can not provide) then humans are indeed rational, aren’t they?
And absolutely no economist insists that government cannot usefully provide certain things, nor that tax revenue is required to pay for such (even the MMT loons insist that taxation is necessary to limit the inflation from funding government by creating new base money).
Ritchie doesn’t understand what economists do say but feels entirely comfortable in rejecting it all because….well, because what?
And then there is the problem created by politicians. Let’s start with the obvious problem that since Neil Kinnock lost the general election in 1992 no politician has believed it possible to increase tax
I think you’ll find that Gordon Brown did increase tax you know.He raised the personal allowance only by inflation, when wages were rising faster than inflation (and in at least one year didn’t even do that). That’s a rise in tax through fiscal drag and it’s how we ended up with people working part time on minimum wage paying income tax.
Then there’s the problem of most politician’s incomprehension of what tax is, and what it is for. This is a pretty big theme in my forthcoming book, The Joy of Tax, but the essence of the problem (even if we ignore for now the intimate relationship between tax and money) is it seems that all politicians think that the sole purpose for tax is paying for public spending. This is completely illogical: first tax is also used to reprice goods and services and secondly to redistribute income and wealth.
Err, yes, like all those economists talking about how to reprice goods through a Pigou Tax to deal with externalities.
Until 2009 that might just have been a theory but now we know it is true: £375 billion of quantitative easing has, since then proved that the government can spend without taxation and effectively cancel the debt it has created to do so without any effective economic consequence if there are otherwise under utilised resources in the economy, as has been the case since then. This should not have been a surprise to anyone: after all, it is now a fact acknowledged by the Bank of England that banks can also create and cancel money out of thin air to meet the demand of the private sector and have no impact on key economic objectives such as inflation if there are existing under-utilised resources in the economy. Why it should be different for a central bank is hard to imagine, except that as the overall best influencer of the price of money it has the greatest chance to do so with least likely damaging consequence arising.
So Milton Friedman was correct about monetarism then. As he showed in his Monetary History of the United States (with Anna Schwartz) and Ben Bernanke, an historian of the Fed’s actions in the 1930s, was an economist who knew what to do when the Crash came.
But economists should be ignored in favour of Ritchie because economists don’t have anything useful to say.
I do appreciate discussion on tax. But in 2015 my wish is that it be informed debate. Without adequate theories of taxation most economists cannot offer that because they view it only as a funding mechanism whilst current politicians have forgotten the intellectual achievement of the post war generation of leaders who perceived it if, sometimes only glimly, as something so much more than that.
If you are determinedly ignorant of what economists say about taxation then how in buggery can you form a view of what economists say about taxation?
What we need are those able to ignite this debate again. Then we could have real political discussion in this country because it is tax that liberates economic possibility. The poverty of current debate is that it thinks the exact opposite to be true.
Hey, why not? Let’s have a proper debate on tax! Informed, perhaps, by what thousands of very clever people have worked out over the past couple of centuries rather than worshipping at the shrine of the dribbling incontinent that is the Retired Accountant from Wandsworth?
I’m all for it personally.